What is Utilization Rate and What It Really Tells You

Think your team’s busy? That doesn’t mean you’re profitable. The utilization rate cuts through the noise, showing how much time really goes toward billing clients – and where to make timely adjustments for better billing efficiency and optimal resource utilization.

In this article, we’ll break down what utilization rate really means, how to calculate it, what an ideal utilization rate looks like, and practical ways to improve it without burning out your team.

Key takeaways

• Utilization rate shows how much of your team’s time is spent on billable work versus non-billable tasks.
• To track billable and non-billable time use a billable hours tracker.
• The utilization rate formula is: (Total number of billable hours ÷ Total available hours) × 100.
• There are two main types: billable utilization (revenue efficiency) and resource utilization (overall capacity use).
• A healthy utilization rate usually falls between 65-85%, depending on the industry and role.
• Core contributors should aim for around 75-85%, project managers for 60-75%, and leaders for 50-70% utilization rate.
• Chasing 100% target utilization rate leads to burnout and lower quality work.
• You can improve employee utilization rates by reducing non-billable work, balancing workloads, automating routine tasks, and tracking time consistently.

What is utilization rate? Definition

Utilization rate tells you what percentage of an employee’s time is spent on billable work versus non-billable tasks that don’t directly influence your revenue (like administrative work or employee training).

The term utilization rate might sound dry and corporate, but it’s actually a key metric for agencies, consultancies, and freelancers, where profitability depends on turning available time into billable work. A low rate can signal too much time spent on admin, meetings, or internal projects instead of client work.

💡 Recommended article: Billable hours vs actual hours

Utilization rate formula with example

You can calculate utilization rate with a simple formula:
(Actual hours worked ÷ Total available hours) × 100

Here’s an example:

Let’s say you work a standard 40-hour week and spend 32 of those hours on billable work.

Plug that into the formula: (32 ÷ 40) × 100 = 80%

That means your utilization rate is 80%, at least this week. In other words, you spent most of your week doing work that actually matters, and the rest on the inevitable admin, meetings, or catch-up time that fills the gaps.

💡 Recommended article: Project billing 101

How to calculate utilization rate: Step-by-Step

If you want to track utilization rates, start by understanding where your team’s time actually goes. A time tracking tool is your best friend here. It automatically records how many hours are spent on billable work versus internal or non-billable tasks.

Once you have that data, calculating your utilization rate becomes simple: divide billable hours by total available hours. The result shows how effectively your team’s capacity is being used.

Here is a step-by-step guide on how to calculate utilization rate:

1. Define the time window

Start by choosing a clear, consistent time window for tracking – usually a week, a month, or a quarter. Track time consistently within that window using the same method each period, so your data stays accurate and comparable.

This consistency makes it easier to identify real trends over time – weekly tracking highlights short-term shifts, while monthly or quarterly tracking reveals broader patterns.

2. Set “available hours” per person

Determine how many hours each person is actually available to work during your chosen time period. Calculate the total hours (working days × hours per day), and subtract time off such as vacation (PTO), public holidays, sick days, and planned training sessions.

The result gives you each employee’s available hours, which form the baseline for calculating utilization rates.

Formula:
Available hours = (Workdays − PTO − Holidays − Sick days − Training) × Hours per day

3. Categorize tasks as billable or non-billable

Label every time entry as either billable hours or non-billable hours. Clear categorization will help you understand how much of your team’s time contributes to income versus operational work, making it easier to manage labor costs and improve utilization accuracy.

• Billable hours include client work or projects that directly generate revenue.
• Non-billable work covers activities like meetings, admin tasks, proposals, or internal projects.

💡 Recommended article: What is block billing?

4. Track all hours (use time tracking software)

Make sure every team member logs all their working hours, both billable and non-billable time, using an automated time tracker like EARLY. This provides a complete picture of how time is spent across tasks, projects and internal activities.

💡 Tip: When you tag each task as billable or non-billable in EARLY, it will automatically calculate total billable and non-billable hours for a chosen period.

Make tracking billable hours as simple as counting to three

Sign up for free to test how automatic time tracking creates timesheets with just a blink of an eye.

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5. Calculate individual utilization

Use the tracked data to determine how much of each person’s available time was spent on billable work. This helps you see how efficiently their hours are being used and identify potential imbalances in workload.

Formula:
Utilization (%) = (Billable hours ÷ Available hours) × 100

💡 You will find it interesting: How to calculate labor costs

6. Calculate the team’s utilization rate

Add together the billable hours and available hours for everyone on the team to see how efficiently your overall capacity is being used. Then, divide the total billable hours by the total available hours and multiply by 100 to get your team’s utilization percentage.

Formula:
Team utilization (%) = (Total billable hours ÷ Total available hours) × 100

7. Compare to targets and costs

Review your team’s utilization rate in the context of your desired profit margin and each role’s expected workload.

• If utilization is too low, your labor and resource costs increase for each deliverable, reducing profitability.
• If it’s too high, your team may be overworked, leading to burnout and a drop in quality.

Aim for a balanced rate that supports both healthy profit margins and sustainable performance.

Two types of utilization rate

Not every hour on the clock serves the same purpose. That’s why there are two main ways to measure how time is used: billable utilization and resource utilization.

TLDR: Billable utilization shows how much time earns money, while resource utilization shows how much time drives progress.

Billable utilization

Billable utilization focuses on revenue. It measures how much of an employee’s time is spent on client work that can be invoiced.

• Who uses it: Agencies, consultancies, law firms, and freelancers.
• Why it matters: It shows how efficiently the team turns working hours into income.
• Example: If a consultant works 40 hours and bills 32 of them to clients, their billable utilization is 80%.

Resource utilization

Resource utilization focuses on capacity. It measures how effectively an organization uses its total available hours – whether that work is billable or not.

• Who uses it: In-house teams, product companies, and operations managers.
• Why it matters: It helps plan workloads, track productivity, and make sure people aren’t overloaded or underused.
• Example: If a software developer spends 35 out of 40 hours on active project work, their resource utilization is 87.5%.

Why monitoring utilization rate matters (and who actually cares)

If you’re trying to run a profitable business and keep your team sane, utilization rate is one of the critical metrics you can’t ignore. Different roles care about it for different reasons:

• Agency owners and consultants track utilization to optimize performance and protect profit margins. Every unbilled hour is lost revenue – and often a sign of poor capacity planning.
• Project and resource managers use it to manage employee workload, ensuring no one is drowning in tasks or sitting idle. It’s the foundation for smarter resource allocation and more predictable delivery timelines.
• Finance and operations teams rely on utilization data to connect time, cost, and output – a key piece of improving employee productivity and overall business efficiency.
• Internal team leads (in marketing, product, or design) monitor it to make sure people spend time on high-impact work instead of endless meetings, supporting both performance and employee satisfaction.
• Freelancers and contractors care about utilization because it directly affects income, capacity, and client outcomes – and higher efficiency often translates into better customer satisfaction.

Monitoring utilization rate isn’t just about time tracking. It’s about finding the right balance between productivity, profitability, and people’s well-being.

What is a good utilization rate?

There’s no single “perfect” utilization rate target for everyone. The optimal utilization rate depends on your industry, your team’s structure, and how you balance billable and non-billable work.

Please note: A healthy team’s utilization rate ensures strong performance and profitability without pushing people into burnout.

Let’s look at what a good team’s utilization rate should be across different types of businesses and roles.

Based on business type

For professional services like consultancies, law firms, and agencies, the average utilization rate typically falls between 75–85%. This range keeps the average utilization ratio high enough to sustain profits while allowing time for proposals, client management, and training.

In product companies or internal teams, the optimal utilization rate is usually lower – around 70–80% – to make space for strategic planning, innovation, and skill development.

Creative and marketing teams often aim for 65–75%. Since creativity requires research, experimentation, and revisions, this lower utilization rate helps maintain quality and originality.

Based on role type

Not everyone in your organization should aim for the same utilization rate target. Different roles contribute to your team’s utilization rate in distinct ways, depending on how much of their time is billable work versus strategic or administrative tasks (usually non-billable time).

Understanding these differences helps you set fair expectations and improve overall efficiency for your team members.

• Designers, developers, and analysts: They typically target 75–85% utilization rate. These are your core contributors – the people producing deliverables and generating direct client value. High utilization here is achievable and expected, as most of their work is project-based and adds to billable hours.
• Project managers: They generally aim for 60–75% utilization rate. Their role is part execution, part coordination. A significant share of their time goes into planning, communication, and problem-solving, which are essential to project success but not always considered as billable hours.
• Leaders, partners, and senior managers: Usually their goal is 50–70% utilization rate. They focus on strategic priorities such as business development, mentoring, client relationships, and organizational growth. A lower utilization rate here isn’t inefficiency. It’s an investment in the long-term direction and profitability of the company.

Linking utilization to billing

To keep margins healthy, many teams calculate their optimal billing rate based on utilization rates. In simple terms, the optimal billing rate formula connects your average utilization ratio, total billable hours, and revenue goals.

The idea is straightforward: If your team’s utilization rate is lower, your optimal billing rate needs to be higher to cover overhead costs and maintain profitability. If utilization is higher, you can stay competitive with lower billable rates while still hitting your targets.

How to increase utilization rate?

Your team’s capacity utilization rate might not be where you’d like it to be—but that doesn’t mean drastic measures are needed.

Before making quick fixes, it’s worth taking a closer look at a few strategic areas that can help you improve employee utilization, reduce labor costs, and strengthen your profit margins.

💡 A small but important tip: Consistent time tracking makes utilization tracking so much easier. It gives you a clear picture of where hours are spent, helping you improve productivity, control labor costs, and plan projects with confidence.

1. Reduce non-billable work and time drains

Start by identifying where your total average labor hours are going. Are team members spending excessive time in meetings or navigating inefficient internal processes? Too much non-billable work increases business costs without contributing to productivity.

Simplifying workflows and eliminating unnecessary administrative tasks can free up valuable hours for client work.

💡 Related article: How to increase billable hours

2. Build a consistent project pipeline

Inconsistent project flow makes it difficult to maintain steady utilization. When there are gaps between projects, your utilization tracking will reflect lower performance even though resource costs remain fixed.

Investing in better sales forecasting, nurturing long-term client relationships, and developing retainer agreements can create more predictable workloads and help stabilize your profit margin.

3. Align team size with demand

If your data shows a consistent shortfall in employee utilization, it may indicate that your team is larger than your current workload requires. This directly affects labor costs and your target profit margin.

Regularly reviewing your number of hours billed versus available hours can help ensure that staffing levels align with business needs.

4. Optimize resource allocation

Effective resource management means matching the right people to the right projects. Assigning senior team members to junior-level tasks leads to unnecessary resource costs and reduced efficiency.

Use utilization tracking insights to align skill levels with project complexity, ensuring that every hour contributes meaningfully to results.

5. Automate routine processes

Manual time tracking, invoicing, and reporting can consume valuable time that could otherwise be billable. Automation reduces business costs, improves accuracy, and makes it easier to measure productivity.

Tools that track time automatically in the background can help employees focus on higher-value work.

6. Strengthen project scoping

Poorly defined project scopes often lead to scope creep, which inflates the number of hours worked and erodes profitability. Clear contracts, well-defined deliverables, and consistent communication with clients can help protect your target profit margin and ensure sustainable employee utilization.

7. Minimize context switching

Constantly switching between multiple projects decreases efficiency and increases labor costs. Encourage focused work blocks to help employees maintain concentration and deliver higher-quality output.

This approach not only boosts productivity but also provides a more accurate view of true utilization.

Recommended article: How to improve focus

Should you aim for 100% utilization rate?

My advice? Don’t aim for 100%. At first glance, 100% utilization sounds ideal. Every hour billed, every person fully booked. But in reality, it’s not sustainable. When your team is operating at full capacity, there’s no time to pause, reflect, or improve. Creativity and problem-solving happen in the space between tasks, and that space disappears when every minute is spoken for.

A team running at 100% might look efficient, but it quickly becomes rigid and overworked. There’s no buffer for unexpected requests, learning, or fixing mistakes. The most effective companies aim for 75–85% utilization – a range that keeps productivity high while leaving room for innovation, quality, and balance.

Wrap-up

Utilization rate is a powerful yet tricky metric. It tells you how effectively your team turns time into value – but it doesn’t show the whole story. The goal isn’t to reach 100%, but to find a sustainable balance that keeps profits strong and people healthy.

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